Updated on 26 June 2026

Making Tax Digital Penalties

A different penalty regime applies to those within Making Tax Digital to that which is in place for self assessment. These penalties can apply if you are late filing a quarterly update or end of year tax return or are late paying any tax due. We outline the main features of the new penalty system for Making Tax Digital below.

A hammer, gavel and a tiny canvas on a stand that reads 'TAX PENALTY'
Andrii Yalanskyi / Shutterstock.com

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Understanding Making Tax Digital penalty points

You can be charged a penalty point for 

However there is no immediate financial penalty, as the system is designed not to penalise an occasional one-off mistake. There is no financial penalty unless you reach the threshold of 4 points in a two-year period. At that stage you can be charged a financial penalty of £200. But see the section ‘Using Making Tax Digital voluntarily’ below for the rules that apply if you are using Making Tax Digital but are not yet legally required to do so. 

It was announced in the Budget in November 2025 that there will be a ‘soft landing’ for the new penalty regime, which means that no penalty points will be charged for the late filing of quarterly updates due for the first 12 months of Making Tax Digital becoming operational. So this covers the following submissions:

  • Quarterly update for the period 6 April 2026 to 5 July 2026 (or 1 April 2026 to 30 June 2026 if calendar quarters election is made), due by 7 August 2026
  • Quarterly update for the period 6 July 2026 to 5 October 2026 (or 1 July 2026 to 30 Sept 2026 if calendar quarters election is made), due by 7 November 2026
  • Quarterly update for the period 6 October 2026 to 5 January 2027 (or 1 October 2026 to 31 December 2026 if calendar quarters election is made), due by 7 February 2027
  • Quarterly update for the period 6 January 2027 to 5 April 2027 (or 1 January 2027 to 31 March 2027 if calendar quarters election is made), due by 7 May 2027

Therefore, assuming you were not in HMRC’s Making Tax Digital testing process for 2024/25 or 2025/26, the earliest you can be charged a penalty point is:

  • if you do not file the quarterly update due for the period April 2027 to June 2027 by 7 August 2027
  • if you do not file your Making Tax Digital tax return for the 2026/27 tax year by 31 January 2028.

The penalty points system is designed in a similar way to points which are given for driving offences. These penalty points stay on your tax record for 2 years before they expire. 

Penalty points and financial penalties can be appealed if you have a reasonable excuse for the late filing. If the appeal is successful they will be removed from your record. 

Making Tax Digital late payment penalties

If you do not pay your tax on time you may be charged late payment penalties and also late payment interest (see the heading below Making Tax Digital late payment interest). 

The first year that anyone is required to follow the Making Tax Digital rules is the 2026/27 tax year (see our page Who does Making Tax Digital apply to?) and therefore the first tax payments due under Making Tax Digital which could be subject to a late payment penalty are due on 31 January 2028. Therefore, assuming you were not in HMRC’s Making Tax Digital testing process, the earliest you can be charged a late payment penalty under the Making Tax Digital penalty regime is if you do not pay the tax payment due on 31 January 2028 on time.

There is a grace period of 30 days in your first year in Making Tax Digital but this reduces to 15 days for your second year onwards. If any tax is outstanding at the end of the grace period you will be charged a late payment penalty, as follows:

  • Payment for 2026/27 tax year – 3% of outstanding amount at end of grace period
  • Payment for 2027/278 tax year onwards – 4% of outstanding amount at end of grace period

If any amount is outstanding after 30 days another late payment penalty can be charged, made up of three parts:

  1. the above penalties are charged again;
  2. further penalties as follows:
  • Payment for 2026/27 tax year - 3% of outstanding amount on day 30
  • Payment for 2027/278 tax year onwards - 4% of outstanding amount on day 30
  1. daily penalty charged from day 31 to date of payment (or 2 years if later) at a rate of 10% per annum. 

Late payment penalties can be appealed if you have a reasonable excuse for the late filing. If the appeal is successful they will be cancelled. 

Late payment penalties cannot be applied to payments on account. 

  Late payment penalties can be avoided if you contact HMRC and set up a payment plan (known as a time to pay agreement) within the grace period. If you contact HMRC after the grace period has ended and a time to pay agreement is made, then penalties are paused from that point. Penalties may be reinstated if you do not keep to the payment plan that is agreed. 

Making Tax Digital late payment interest

In addition to late payment penalties, late payment interest will also be charged on any late paid tax from the original due date for the payment until the date it is paid.  

The interest rate is set at the Bank of England base rate plus 4%. We have more information on late payment interest on our Tax penalties and interest page.

Using Making Tax Digital voluntarily

If you have chosen to use Making Tax Digital before you are legally required to and so are a volunteer user, you are subject to a modified version of the new penalty points regime. (You will have had to agree to this as part of the sign-up process.) Essentially, this means penalty points for late filing of quarterly updates will not be applied, and your penalty point threshold is 2 points rather than 4 points. See GOV.UK for more details on this.

The late payment penalties and late payment interest charges still apply if you are using Making Tax Digital voluntarily.

More information

HMRC’s guidance on penalties under Making Tax Digital is on GOV.UK

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